On February 2, 2026, the California Supreme Court issued its decision in Fuentes v. Empire Nissan, Inc. that, in part, provides important clarification on how courts should evaluate unconscionability challenges based on an arbitration agreement's legibility and formatting. Ultimately, the Court reaffirmed that small-print and formatting are exclusively issues related to procedural unconscionability because they do not affect the substance of the agreement's terms. The Court also reaffirmed the traditional sliding scale analysis for evaluating unconscionability challenges, including that courts must "closely scrutinize" the contract's terms (i.e., substantive conscionability) when a high degree of procedural unconscionability is found.
The Employment Application at Issue
Evangelina Fuentes applied for employment at Empire Nissan and as part of the application process signed an "Applicant Statement and Agreement," which contained a mandatory arbitration provision. The provision purported to require arbitration of all disputes arising out of the employment relationship. The clause was embedded in a single, lengthy paragraph printed in very small, blurry type and written in dense legal language.
Fuentes was given only a few minutes to complete the application materials and was instructed to do so quickly. She was invited to ask questions, but did not receive a copy of the agreement. After she began working, Empire Nissan required her to sign two confidentiality agreements addressing unfair competition and the protection of confidential information. Those confidentiality agreements "supersede[d] any and all prior agreements" and authorized the pursuit of remedies "at law or in equity," but they were silent on forum.
Following a medical leave, Empire Nissan terminated Fuentes' employment. She later filed suit asserting wrongful termination and related claims. Empire Nissan responded by moving to compel arbitration based on the arbitration provision in the application agreement.
Trial Court and Court of Appeal Rulings
The trial court denied the motion to compel arbitration. It found the agreement was marked by a "high degree" of procedural unconscionability due to its illegible formatting, dense structure, and the rushed circumstances under which Fuentes was required to sign. The court also identified a "low to moderate degree" of substantive concerns, focusing on the "fine print terms" being indicative of substantive unconscionability and interaction between the arbitration agreement and the later superseding confidentiality agreements, which also appeared to preserve court access for claims most likely to be asserted by the employer. Based on these findings, the trial court deemed the arbitration agreement unconscionable.
Nissan appealed the trial court's ruling, and the Court of Appeal reversed by split opinion. In doing so, the Court of Appeal acknowledged the poor readability of the agreement, which the majority concluded that formatting defects could only support a finding of procedural unconscionability (i.e., not substantive unconscionability). In assessing the ambiguity between the arbitration agreement and subsequent confidentiality agreements, the Court of Appeal interpreted the confidentiality agreements as "requiring arbitration of claims brought under them," relying upon the principle that "federal and California law strongly favors arbitration." Having found no substantive unconscionability, largely based on this interpretive principle, the Court of Appeal declined to address procedural unconscionability and held the arbitration agreement was enforceable.
The California Supreme Court's Clarification
The California Supreme Court reversed the Court of Appeal and provided critical guidance on two points: (a) the role of illegibility in unconscionability analysis; and (b) principles for resolving ambiguity in arbitration agreements.
First, the California Supreme Court held that a contract's format is an issue of surprise (i.e., procedural unconscionability), but it does not affect the fairness of the actual terms of the agreement (i.e., substantive unconscionability). As the court stated, "An otherwise fair and mutual term is not made substantively unconscionable by printing it in a manner that makes it difficult to read; the fact that a term is printed in tiny, blurry font does not alone make it harsh, one-sided, or otherwise unfair."
Second, the California Supreme Court found that the Court of Appeal erred in its rationale regarding substantive unconscionability, and remanded the case with directions. Specifically, the court found there was ambiguity between the dispute resolution processes as to claims covered by their respective agreements. But, in order to resolve the ambiguity, the court held "the principle that the law strongly favors arbitration" was not a permissible "interpretive presumption." Rather, the law only requires arbitration agreements to be "treated like other contracts" (i.e., not disfavored), and traditional contract interpretation principles apply. Under those principles, as indicated by the court, where a high degree of procedural unconscionability exists, courts must "closely scrutinize" the agreement for unfairness or one-sidedness, with ambiguities resolved against the drafting party.
Ultimately, the California Supreme Court remanded the case to the trial court to develop a factual record for its findings and reassess substantive unconscionability consistent with the opinion.
Practical Implications for Employers
The decision underscores how arbitration agreements that are difficult to read, rushed, or presented without meaningful opportunity to review can create a high degree of procedural unconscionability. Although these alone do not invalidate the agreement, it will commensurately reduce the requisite showing of substantive unconscionability necessary to invalidate the agreement, and with ambiguities construed against the drafting party. Fuentes also demonstrates how employers must be careful to not allow subsequent employment agreements to unintentionally modify prior arbitration agreements.
